The news that Standard & Poor’s changed the rating for the U.S. from “stable” to “negative”, boosted again gold prices, which reached new historical records on the markets in the U.S. and Europe.
Friday in New York, gold prices reached historical record of $1,512.50 an ounce. Monday, in transactions in Europe, gold reached $1,518.30 an ounce. Price has been rising for six continuous weeks, boosted up by the conflicts in the Middle East and North Africa, by fears of sovereign debt of countries in the Eurozone and the weakness of the U.S. Dollar.
The new record comes after a year in which the gold price increased by 6%. The price of silver rose more than gold, which was by 50% last year, reaching Friday the highest level in over 31 years – $47.71 per ounce Friday in New York, $49.79 per ounce Monday in Europe.
For the first time from 1941, when the rating agency Standard & Poor’s was established, the United States received from the institution a soft rating, lower than the AAA that it maintained throughout this time: the prospect of the rating was changed a few days ago from stable to negative. “There is a likelihood of one in three over the next two years to reduce the U.S. long-term rating”, the agency noted.
The reason for such an unprecedented decision is uncertainty related to the debt-ceiling increase of the country, on which Democrats and Republicans continue to fight, although the current ceiling of 14.3 trillion Dollars, set in February 2010, will be exceeded in just a few weeks, on May 16, which would mean that, in early July, the U.S. could go into bankruptcy. Treasury Secretary Timothy Geithner, who proposes to the Congress the raising of the ceiling, said he was confident in the chances of an agreement between parties, but obviously it will not solve the basic problem, namely how sustainable the country’s huge debt is.
Important investors like John Paulson, David Einhorn and George Soros have noticed the tendency for price rises after the precious metal, always considered reserve asset in times of crisis or uncertainty in financial markets. They all have shifted some of their placements in gold or other assets linked to the price of gold, including shares of companies that deal with gold mining. SPDR Gold Shares, one of the largest funds traded on the stock exchange has increased its assets with 5 billion dollars, almost 10%, in the last month.
Analysts believe that increasing the cost of gold is not good news for U.S. economy, because a boom in gold and oil shows always that the dollar has lost investor confidence because of the lack of responsibility of tax policy in U.S. sanctioned now by Standard & Poor’s, but also the policy “of quantitative relaxation” practiced by the Federal Reserve (buying bonds with new money thrown into the system by the central bank), a method used by U.S. authorities to combat the liquidity crisis in the banking system, thus exporting inflation worldwide.
The U.S. debt, nor the money from the Fed printing press do not disappear overnight. This explains why a recent Reuters poll among investors gave an estimate of the gold price of no less than 1,700 Dollars per ounce in 2015. “We believe that we could even have a price of $1,600 per ounce by the end of this year,” said for BBC the manager of Sector Investment Managers, an investment fund with investments in gold and oil.